VZCZCXRO3539
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0609/01 0850944
ZNR UUUUU ZZH
R 250944Z MAR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3911
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0768
RUEHBY/AMEMBASSY CANBERRA 0639
RUEHLO/AMEMBASSY LONDON 1463
RUEHMO/AMEMBASSY MOSCOW 0768
RUEHFR/AMEMBASSY PARIS 1316
RUEHOT/AMEMBASSY OTTAWA 0600
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 05 PRETORIA 000609 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
 
E.O.   12958: N/A 
TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 3, 16-29 February, 2008 
 
This cable is not for Internet distribution. 
 
¶1. (SBU) Introduction:  The purpose of this newsletter, initiated in 
January 2004, is to highlight minerals and energy developments in 
South Africa.  This includes trade and investment as well as supply. 
 South Africa hosts world-class deposits of gold, diamonds, platinum 
group metals, chromium, zinc, titanium, vanadium, iron, manganese, 
antimony, vermiculite, zircon, alumino-silicates, fluorspar and 
phosphate rock, and is a major exporter of steam coal.  South Africa 
is also a leading producer and exporter of ferroalloys of chromium, 
vanadium, and manganese.  The information contained in the 
newsletters is based on public sources and does not reflect the 
views of the United States Government.  End introduction. 
 
-------- 
HOT NEWS 
-------- 
 
-------------------------------- 
France's Nuclear Charm Offensive 
-------------------------------- 
 
¶2. (SBU) French President Nicholas Sarkozy, accompanied by his wife, 
led a senior commercial delegation of 40 business people on a 
two-day state visit to South Africa during February 28-29.  The 
President signed a number of cooperation agreements with the SAG and 
handed out a package of monetary and technical assistance incentives 
in support of French company Areva's bid for large nuclear 
contracts.  Their competitor is U.S. company Westinghouse.  The 
French President hoped to help secure South Africa's lucrative 
long-term fleet of new nuclear build and his timing was impeccable 
as the closing date for the tender submission for the first 3,500 
megawatt tranche of new build was January 31.  The initial 
evaluation of the bids from Areva and Westinghouse was done on 
February 15 and Eskom's board is due to give its recommendation on 
the preferred vendor by June after receiving final bids on March 31. 
 The final decision will be made by parliament and will include soft 
issues that contribute 20 percent to the scoring of the tenders. 
They soft issues deal with social, labor and technology transfer 
spin-offs that are important to the SAG's transformation and 
upliftment goals. 
 
¶3. (SBU) The first tranche, known as Nuclear 1, is for the 
construction of a nuclear power plant (with two to three individual 
reactor units) with capacity between 3,000-3,500 megawatts ($16 
billion).  The grand prize however will be the tender for a 20,000 
megawatt fleet of nuclear plants by 2025 ($100 billion).  The French 
are pulling out all the stops to win these contracts.  They believe 
they have the advantage because they built South Africa's only 
nuclear plant in the Western Cape, the twin-unit 1,800 megawatt 
Koeberg facility that has operated successfully for more than 20 
years.  Areva also stepped in to provide a replacement rotor when 
one of the Koeberg units was damaged in a freak accident in 2006. 
Westinghouse believes that their newer more flexible reactor 
technology and their proven ability to technically empower local 
people to manufacture, build and operate nuclear plants through 
training and technology transfer, as they did in France and have 
Qmost 
recently done in South Korea, will swing both the technical and 
political decisions in their favor. 
 
----------- 
EXPLORATION 
----------- 
 
------------------------------------- 
Exploration Boom for Tomorrows Metals 
------------------------------------- 
 
¶4. (SBU) The Metals Economics Group says that global exploration is 
alive and well.  Expenditures have increased by more than 450 
percent since the nadir of 2002 when a total of only $1.9 billion 
was spent on exploring for non-ferrous minerals.  The amount spent 
in 2007 was $11.4 billion.  Most exploration is carried out by small 
and junior companies that generally sell finds to major mining 
companies in order to maintain their cash flows.  Juniors accounted 
 
PRETORIA 00000609  002 OF 005 
 
 
for more than 53 percent, intermediaries 16 percent and majors 31 
percent of exploration expenditures.  In terms of where the money 
was spent, 24 percent went to Latin America, 19 percent to Canada, 
16 percent to Africa, 12 percent to Australia, 8 percent to the 
United States, 4 percent to Pacific/SE Asia and 17 percent to the 
rest of the world.  The commodity split heavily favored the precious 
minerals with 42 percent going to gold, 36 percent to base metals, 
10 percent to diamonds, 3 percent to platinum group metals (PGMs), 
and 9 percent for others 
 
¶5. (SBU) The African tranche of exploration expenditures went mainly 
to South Africa, DRC, Angola, Tanzania, Botswana and Ghana, with 
South Africa taking 4 percent of the global figure.  Exploration in 
South Africa was focused on PGMs in the Bushveld Complex, but gold 
and diamonds also featured strongly.  This exploration took place 
despite concerns about government policies and the prevailing 
electricity shortage, which casts doubt on Eskom's capacity to 
supply new mines for the next few years.  Diamonds dominated 
exploration in the DRC and Angola and there was also significant 
activity in the DRC/Zambian copper-cobalt belt that straddles the 
border between the two countries.  The DRC government's review of 
all exploration leases and mining contracts has sent a wave of 
uncertainty through the mining community that could impact on 
further investment until the matter is resolved.  Copper and uranium 
were the main targets in Zambia, gold in Tanzania and Ghana, uranium 
and diamonds in Namibia, and diamonds, copper, nickel and coal in 
Botswana.  Botswana is already the world's biggest diamond producer 
and appears destined to become prominent in coal where resources are 
estimated to exceed 200 billion tons of steam coal.  A number of 
other African countries have on-going exploration programs for a 
variety of minerals and oil and gas. 
 
----------- 
ELECTRICITY 
----------- 
 
------------------ 
Saving Power in SA 
------------------ 
 
¶6. (SBU) South Africans are thought to use energy very inefficiently 
and some experts believe that a 30 percent to 50 percent reduction 
in household use is attainable.  Eskom made a plea to residential 
consumers in a recent three-page Sunday newspaper advertisement to 
adopt conservation and efficiency measures because the country no 
longer had the luxury of excess capacity and will have to embrace 
energy efficiency as a way of life.  Eskom said the situation would 
remain tight for the next five years until new build comes on line, 
and also outlined its National Response Plan for mitigating and 
resolving the power shortage. 
 
¶7. (SBU) The National Response Plan identifies three phases: 
-- Phase 1 - Stabilization (generally completed).  A 10 percent 
reduction in power consumption has been imposed on mining and 
industrial consumers and coal stock-piles have been replenished. 
(The power allocation to mines has subsequently been increased to an 
average of 95 percent.) 
-- Phase 2 (March-July).  A 10 percent across-the-board power 
reduction will be applied to municipalities.  Eskom intends to 
Qreduction will be applied to municipalities.  Eskom intends to 
monitor progress during this time.  (Eskom has also threatened to 
re-impose load-shedding on residences, absent adequate conservation 
gains.) 
-- Phase 3 - Power conservation (next four years) and fast-tracking 
new power build, while sustaining the power reduction to enable 
growth and assure operational reserves. 
 
------ 
MINING 
------ 
------------------------------------------ 
SA Mines Expansion Stymied by Power Crisis 
------------------------------------------ 
 
¶8. (SBU) Chamber of Mines executive Frans Barker says that the 
recent decision by Eskom to increase the average power supply to 
mines to 95 percent is welcomed and will save jobs, but it will not 
 
PRETORIA 00000609  003 OF 005 
 
 
be enough for the sector's expansions plans.  Mining created 40,000 
new jobs last year.  Barker said some mines might not receive more 
than 90 percent power and others could receive their full 
requirement where the 10 percent reduction would impact heavily on 
jobs.  Whatever the split, therewould still be some losses in jobs 
and production in the short term.  In the longer-term, the mines can 
probably adjust to the reduced power levels.  Barker said the 
biggest concern was that many projects in the pipeline would likely 
be delayed or shelved, and there was an urgency to develop a 
strategy to mitigate these effects in the medium term.  BHP-Billiton 
has announced that it plans to reduce aluminum production by 120,000 
tons a year from its southern African smelters (15 percent of total 
output valued at $500 million at current metal prices) due to 
Eskom's power rationing. 
 
------------------------------- 
Post Boom SA Mining - Where To? 
------------------------------- 
 
¶9. (SBU) A Business Day editorial writer lamented that increasing 
state bureaucracy, intervention, and politicization of the business 
process is "poisoning South African business".  He cited the 
increasing scope of state licensing required to carry out business 
and noted that mining licensing requirements are now so onerous that 
although South Africa has some of the most attractive mining assets 
in the world, its mining sector is being stifled by excess 
government regulation.  This was especially unfortunate during the 
current super commodity boom, according to the writer.  Thousands of 
exploration and mining license applications await processing by the 
Department of Minerals and Energy (DME), but the ministry lacks the 
capacity and experience to process them.   Booming commodity prices 
have given the industry respectable financial returns, but little 
increase in production.  In other words, mining is doing well, but 
it could be doing a great deal better if the state would step aside 
and allowed miners to work.  The real question is what will happen 
if the boom comes to an end and prices return to their earlier 
levels?  Investors would again be able to pick and choose from a 
range of global projects and South Africa may be low on their 
investment list.  Under these circumstances, could marginal mines 
survive, would the low level of exploration have produced new mines, 
and would new investment be available to fund expansions to existing 
mines or bring new mines on stream? 
 
¶10. (SBU) This uncertainty was exacerbated when the newly elected 
ANC Secretary-General Gwede Mantashe hinted at the creation of more 
state-owned enterprises in the resource sector after the country's 
upcoming elections in 2009.  Speaking at a Centre for Development 
and Enterprise function in Johannesburg, Mantashe argued for greater 
state intervention in the economy.  He targeted the commodity sector 
in general, and platinum mining in particular but stressed that he 
was not talking nationalization but rather partnerships with private 
companies in productive enterprises.  He said this would accelerate 
Qcompanies in productive enterprises.  He said this would accelerate 
the release of mineral rights and create new financial resources for 
wealth redistribution.  He noted that such models were common in 
other parts of the world, including neighboring Botswana and Namibia 
where the states are in 50/50 partnerships with De Beers in diamond 
mining.  Mantashe's comments were made as platinum jumped to a new 
record high of above $2,200 per ounce on supply fears resulting from 
electricity rationing at South African mines. 
 
-------- 
BOTSWANA 
-------- 
 
----------------------- 
Mining Industry Booming 
----------------------- 
 
 
¶11. (SBU) Prior to the discovery of diamonds, Botswana was a poor 
country that relied heavily on cattle ranching, subsistence 
agriculture, and assistance from the British government for economic 
survival.  Some gold, copper-nickel, potash and coal mining was 
active but their combined contribution to the economy was small. 
Discovery of the world's richest diamond pipes at Orapa and Jwaneng 
in the 1960's and 1970's changed all that and, together with good 
 
PRETORIA 00000609  004 OF 005 
 
 
governance and an investor-friendly fiscal regime, the country has 
prospered.  Diamonds have accounted for a major portion of the 
country's exports and GDP over the past two decades and the GOB is 
seeking to diversify the economy away from its reliance on a single 
commodity.  Botswana's enlightened mining code has encouraged 
exploration and the country has experienced a resurgence of 
exploration and mining activity over the last couple of years. 
Exploration is continuing for a wide variety of minerals and several 
new projects were launched during 2007.  Recent discoveries include 
new deposits of diamonds, coal, gold, uranium, copper-cobalt, 
nickel, and coal-bed methane. 
 
¶12. (SBU) Projects underway and planned include moving the 
headquarters of the Diamond Trading Company (DTC), De Beers' rough 
diamond marketing arm, from London to Botswana.  The DTC should be 
operational by the end of the year and has agreed to sell 
$360-million worth of rough diamonds to Botswana gem cutters to 
create some 3,000 jobs.  A number of new diamond mining developments 
are underway, which should add another one million carats per year 
by 2012.  The government is also making progress in promoting local 
mineral beneficiation with metal refiner Activox to produce finished 
copper and nickel cathodes in Botswana.  At peak construction, the 
project is expected to employ more than 4,000 people.  There are 
also plans to construct a third diamond plant at Orapa and to start 
underground mining at Jwaneng.  Botswana's huge coal resources, 
estimated at more than 200 billion tons, are of major interest to an 
energy-short South Africa.  Canadian CIC Energy Corporation is 
planning to build a $5.5 billion, 3,600 megawatt coal-fired power 
station to supply energy to South Africa and the plant is scheduled 
for commissioning in 2011.  The potential for coal-bed methane is 
also being investigated. 
 
-------- 
IN BRIEF 
-------- 
 
---------------------- 
SA Gold Dominance Ends 
---------------------- 
 
¶13. (SBU) South Africa has been the world's major gold producer 
since 1905 (when it overtook the U.S.), reaching a peak output of 
1,000 tons in 1970.  Since then, updated output figures show that 
production declined by 7.4 percent in 2007 to 254.7 tons (8.19 
million ounces), and estimates are for a further 10 percent decline 
in 2008 due to power shortages.  At the same time Chinese output 
increased to between 270 and 276 tons, making them the world's 
number one producer.  Australia and the United States occupied third 
and fourth positions with 248 and 240 tons, respectively, although 
both countries saw a slight decline in annual output. 
 
----------------------------------------- 
Iran to Invest in Zimbabwean Oil Refinery 
 
----------------------------------------- 
 
¶14. (SBU) The state-controlled Zimbabwean Herald has reported that 
the Iranian Ambassador to Zimbabwe said his country plans to invest 
in rehabilitating Zimbabwe's Feruka Oil Refinery.  The refinery is 
located in the eastern city of Mutare (previously Umtali), located 
near the border with Mozambique.  It is connected by pipeline to the 
Qnear the border with Mozambique.  It is connected by pipeline to the 
Mozambican port city of Beira from where most of Zimbabwe's fuel 
supplies are pumped. The Ambassador said that Iranian technical 
teams had evaluated the plant, and had submitted their findings to 
the respective Governments, which were negotiating legal and other 
issues. 
 
------------------------------------- 
Coal Use could Increase by 73 percent 
------------------------------------- 
 
¶15. (SBU) At a recent energy conference in Johannesburg, the CEO of 
business strategy consultancy firm Stratek said that over the next 
25 years global coal use is set to increase by 73 percent, overall 
energy demand by 50 percent, and oil demand to 116-million barrels a 
day (from the current 82 million barrels).  He said that coal's 
 
PRETORIA 00000609  005 OF 005 
 
 
current share of the energy mix was 25 percent in 2005, but this 
would rise to 28 percent by 2030. 
 
-------------------------------------- 
Viable Uranium Price is $120 per Pound 
-------------------------------------- 
 
¶16. (SBU) Speaking at a uranium conference in Johannesburg, 
Witwatersrand University Geosciences Professor Judith Kinnaird said 
that the current price of uranium would have to be $120 per pound 
(currently below $70) to be equivalent to the price two decades ago. 
 She said that the 439 nuclear reactors operating in 41 countries 
currently produced 16 percent of the world's electricity.  She also 
said that 34 reactors were in construction, 93 were on order or 
planned, and 222 were being proposed. 
 
BOST